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Author: Soltan Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75833  
Subject: 401(k) and IRA Date: 2/16/2000 9:32 AM
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Hello,

My wife opened a Regular IRA and made contributions for 1999($2000). She opened a 401k (for year 2000) at work and deposited $250.00 in it before getting laid off. She has taken the 401k money and rolled it into her IRA (mentioned above).

First question, can she add $1750 (To total $2000 for year 2000) more into the Regular IRA for 2000 contributions? I was told she couldn't and I just wanted to make sure. I was also told that she could open a Roth-IRA for year 2000 and she could place $2000 dollars in there. Is that true?

Second question, if she opens a Roth-IRA can she still continue to contribute $2000 in the years to come even if she is not working?

Hopefully these questions wern't answered in a previous post and I missed them. I appoligize if that is the case.

Thanks!!
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Author: TMFPixy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 19164 of 75833
Subject: Re: 401(k) and IRA Date: 2/16/2000 1:17 PM
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Greetings, Soltan, and welcome. You wrote:

<<My wife opened a Regular IRA and made contributions for 1999($2000). She opened a 401k (for year 2000) at work and deposited $250.00 in it before getting laid off. She has taken the 401k money and rolled it into her IRA (mentioned above).

First question, can she add $1750 (To total $2000 for year 2000) more into the Regular IRA for 2000 contributions? I was told she couldn't and I just wanted to make sure. I was also told that she could open a Roth-IRA for year 2000 and she could place $2000 dollars in there. Is that true?>>


The rollover of 401k money does not count against the $2K IRA contribution limit. She may still contribute the full $2K to an IRA for 2000. Thus, she would end up with $2,250 if she did so in the same IRA; however, on doing so she would lose any eligibility to transfer the $250 to a new employer's 401k in the future. Given that's a small sum, that's no big loss.

<<Second question, if she opens a Roth-IRA can she still continue to contribute $2000 in the years to come even if she is not working?>>

As long as you have the earned income to support that contribution, fall under the Roth AGI limits, and file a joint return, then yes she can.

For more on IRAs, visit our IRA area at http://www.fool.com/money/allaboutiras/allaboutiras.htm.

Regards..Pixy

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Author: Wavelength One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 19176 of 75833
Subject: Re: 401(k) and IRA Date: 2/16/2000 3:02 PM
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Soltan:
<<My wife opened a Regular IRA and made contributions for 1999($2000). She opened a 401k (for year 2000)at work and deposited $250.00 in it before getting laid off. She has taken the 401k money and rolled it into her IRA (mentioned above).

First question, can she add $1750 (To total $2000 for year 2000) more into the Regular IRA for 2000 contributions? I was told she couldn't and I just wanted to make sure. I was also told that she could open a Roth-IRA for year 2000 and she could place $2000 dollars in there. Is that true?>>

Pixy:
The rollover of 401k money does not count against the $2K IRA contribution limit. She may still contribute the full $2K to an IRA for 2000. Thus, she would end up with $2,250 if she did so in the same IRA; however, on doing so she would lose any eligibility to transfer the $250 to a new employer's 401k in the future. Given that's a small sum, that's no big loss.


Pixy, I'd agree with your comments, except maybe adding one small one of my own for clarification. His wife was told that she couldn't make an IRA contribution in the year 2000 because she had contributed to a 401k program early in 2000 before being laid off. You rightly answered that the amount of the 401K contribution had no bearing on eligibility to contribute to an IRA, or in any way limit the amount. However, she was probably confusing eligibility to contribute to an IRA with eligibility to deduct it. Assuming she and her husband are above the income limits, her 401k contribution this year will result in this year's IRA contribution being non-deductable. Given this fact, it's a no-brainer that the 2k contribution for year 2000 should be put into a Roth and not her already established Traditional IRA, again as long as the couple falls under the Roth income limits.

Wavelength

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